Posted on Sunday, 22nd April 2012 by Paul Risser
Print This PostMany people underestimate lifestyle costs, medical expenses and inflation.
Presented by Paul H. Risser
What is enough? What is not enough? If you’re considering retiring in the near future, you’ve probably heard or read that you need about 70% of your end salary to live comfortably in retirement. This estimate is frequently repeated … but that doesn’t mean it is true for everyone. It may not be true for you.
You won’t learn how much retirement income you’ll need by reading this article. You’ll want to meet with a qualified financial professional who can help you estimate your lifestyle needs and short-term and long-term expenses.
That said, there are some factors which affect retirement income needs – and too often, they go unconsidered.
Health. Many of us will face a major health problem at some point in our lives – perhaps even multiple or chronic health problems. We don’t want to think about that reality. But if you’re a new retiree, think for a moment about the costs of prescription medicines, and recurring treatment for chronic ailments. These minor and major costs can really take a bite out of retirement income, even with a great health care plan. While generics have slowed the advance of prescription drug costs to about 1-2% a year recently,1 one estimate found that a 65-year-old who retired in 2007 would need $215,000 to pay for overall retirement health care costs – up about 7.5% from 2006.2
Heredity. If you come from a family where people frequently live into their 80s and 90s, you may live as long or longer. Imagine retiring at 55 and living to 95 or 100. You may need 40-45 years of steady retirement income.
Portfolio. Many people retire with investment portfolios they haven’t reviewed in years, with asset allocations that may no longer be appropriate. New retirees sometimes carry too much risk in their portfolios, with the result being that the retirement income from their investments fluctuates wildly with the vagaries of the market. Other retirees are super-conservative investors: their portfolios are so risk-averse that they can’t earn enough to keep up with even moderate inflation, and over time, they find they have less and less purchasing power.
Spending habits. Do you only spend 70% of your salary? Probably not. If you’re like many Americans, you probably spend 90% or 95% of it. Will your spending habits change drastically once you retire? Again, probably not. Most people only change spending habits in response to economic necessity or in pursuit of new financial goals. People don’t want to “live on less” once they have had “more”.
Social Security (or lack thereof). In 2005, SSI represented 39% of a typical 65-year-old retiree’s income. But by 2030, Social Security may only replace 29% of that income, after deductions for Medicare premiums and income taxes. Since 1983, retirees earning more than $25,000 in SSI have had to pay income tax on a portion of their benefits.3 This is all presuming Social Security is still around in 2030.
So will you have enough? When it comes to retirement income, a casual assumption may prove to be woefully inaccurate. Meet with a qualified financial professional while you are still working to discuss these factors and estimate how much you will really need.
Paul Risser is a Representative with Transamerica Financial Advisors, Inc.
These are the views of Peter Montoya Inc., not the named Representative, the Broker/Dealer or Bookhaven Press, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer nor Bookhaven Press gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.
LD28030-08/11
Citations. 1 nytimes.com/2007/09/21/business/21generic.html?_r=1&oref=slogin
2 marketwatch.com/news/story/health-care-costs-retirement-rise/story.aspx?guid=%7bEF2B6CDA-E176-4747-B528-76AC814051C5%7d&print=true&dist=printTop
3 money.cnn.com/2007/05/14/pf/retirement/nasi__report/index.htm
Learn more about your benefits, employment, travel, and financial planning issues on our site and visit our Blog frequently at https://fedretire.net to read all forum articles.
Visit our other informative sites
- Federal Government Jobs & Career Center
- FREE Federal Employee’s Retirement Planning Guide
- Federal Retiree Job Opportunities
- Federal Employee & Retiree BLOG
- Federal Employee’s Career Development & IDP Center
- Post Office Jobs & Career Center
- Job Search – All Sectors
- Environmental Health & Safety Job Center
- Nuclear Jobs and Careers
- Stolen Car Plates & Recovery Guide
- Take Charge of Your Federal Career (A Career Planning Workbook)
- The Book of U.S. Government Jobs (How to Apply for Federal Jobs)
Distribute these FREE tools to others that are planning their retirement
- 2012 Excel Leave Chart (target 2012 retirement dates and determine exact leave balances for each date)
- How to be Emotionally and Physically Prepared When You Retire
- How to be Financially Prepared When You Retire
- Master Retiree Contact List (Important contact numbers and information)
- Survivor’s Guide
- Estate Planning Guide (An 11 part series that will help readers prepare for retirement, understand basic estate planning techniques, and compile their personal “Survivor’s Guide” binder.)
Last 5 posts by Paul Risser
- Reassessing Retirement Assumptions - May 13th, 2013
- Retirement Seen Through Your Eyes - April 6th, 2013
- A Roth IRA’s Many Benefits - March 3rd, 2013
- IRA CONTRIBUTION LIMITS RISE FOR 2013 - February 1st, 2013
- Making Retirement Savings Last - January 14th, 2013
- Important IRS Adjustments For 2013 - December 4th, 2012
- Your Annual Financial To-Do List - November 9th, 2012
- The Major Retirement Planning Mistakes - October 6th, 2012
- You Can't Hide In Fixed Income - September 6th, 2012
- THE RETIREMENT REALITY CHECK - August 9th, 2012
- An Estate Planning Checklist - July 8th, 2012
- Important issues regarding your benefits - June 8th, 2012
Posted in ANNUITIES / ELIGIBILITY, ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS, SOCIAL SECURITY / MEDICARE, SURVIVOR INFORMATION | Comments (0)
Print This Post